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Events
Managing Food Price Volatility
January 27, 2015Risk Management and Vulnerability

Food prices tend to be volatile. Periods of high prices pose a serious threat to the food security of the poor. When the prices of staple foods surge, as they did in 2007 and 2010, the real incomes of net food buyers decline, with large numbers of net buyers of food forced into poverty as a result. But these short-run impacts may not be the complete story.

Food prices tend to be volatile, with relatively long periods in the doldrums punctuated by short but intense price peaks. These periods of high prices pose a serious threat to the food security of the poor, who spend a large share of their incomes on food. When the prices of staple foods surge, as they did in 2007 and 2010, the real incomes of net food buyers decline, with large numbers of net buyers of food forced into poverty as a result. But these short-run impacts may not be the complete story. If higher prices are sustained, farmers increase their output, the wages of unskilled workers rise in response to higher output prices, and poverty rates are likely to fall. 

In his talk, Will Martin will discuss the effects of price insulation, a policy instrument that developing countries frequently use to protect their markets from short-run price changes. Price insulation creates a collective action problem by putting upward pressure on world prices, which makes it difficult for other countries not to respond and results in a beggar-thy-neighbor effect. Using household models based on data from expenditure and agricultural producers, he will demonstrate that this policy was ineffective in blunting the poverty-increasing impacts of the original shocks to world market prices, and that subsequent increases in domestic prices seem to have helped reduce poverty. Ultimately, his findings will highlight the need for policy measures—such as social safety nets, rational stockholding, and improvements in market efficiency—that can alleviate the impact of food price volatility.

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    William J. Martin, Research Manager for Agricultural and Rural Development

    Will Martin is Research Manager of the Agricultural and Rural Development program in the Development Research Group. His research interests include agricultural trade policy and developing countries, with a particular focus on the World Trade Organization and economic development.
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    Asli Demirgüç-Kunt, Director of Research

    Asli Demirgüç-Kunt is the Director of Research in the World Bank. After joining the Bank in 1989 as a Young Economist, she has held different positions, including Director of Development Policy, Chief Economist of Financial and Private Sector Development Network, and Senior Research Manager, doing research and advising on financial sector and private sector development issues.
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    Anabel Gonzalez, Senior Director of the World Bank Group Global Practice on Trade and Competitiveness

    Previously, she served as Costa Rica’s Minister of Foreign Trade and the president’s principal advisor, negotiator, and spokesperson on trade and investment policy. During her tenure, Anabel led Costa Rica’s efforts to join the OECD, negotiated, approved, and implemented six free trade agreements - including with China and the European Union - and implemented policies that significantly enhanced the investment climate in Costa Rica and contributed to attracting over 140 investment projects. She also had a lead role in Costa Rica’s Competitiveness and Innovation Council.
  • The Policy Research Talks showcase the latest findings of the research department and their implications for World Bank operations. The goal of the monthly event is to facilitate a dialogue between researchers and operational staff, so that we can challenge and contribute to the World Bank's intellectual climate and re-examine conventional wisdom in current development theories and practices.
POLICY RESEARCH TALK